Brands' Facebook Investments Show Increasing Risk

Recent coverage has increased my doubts in Facebook’s management team, whose failure to capitalize on its unique assets looks increasingly likely. In the Facebook As Investment trilogy, I examined Facebook through three different lenses and voiced my doubts about its management team’s ability to realize the company’s fantastic potential. Many of CSRA’s clients have invested significantly in Facebook presences, and I am not predicting the site’s demise, but I question its long-term viability. Brands face two types of immediate risk: erratic technology/functionality changes to “add value” with features—and lack of innovation due to management team paralysis. Facebook Page owners and individual users may be inconvenienced, but nothing drastic will happen right away. As a related issue, Facebook’s experience may presage a Web 2.0 startup bubble bursting. After a summary of danger signs, I’ll recommend how you can minimize your inconvenience due to Facebook’s gyrations.

Posts that Suggest that Facebook Is Drifting

In Facebook Revenue Skids, Shares Plummet, I am not concerned about revenue and even less about share price; however, the management team’s quoted responses do not reflect an understanding of the company’s lack of a value proposition. Zuckerberg’s answer is “Mobile is a huge opportunity for Facebook.” With all due respect, I am underwhelmed. I have never heard any of Facebook’s team address two core problems:

  • Advertising has rarely been an effective business model for websites in general because people online are active in their Web experiences, they control their own workflows, and they are interacting, so they have a low tolerance for ads. Advertising thrived when audiences were passively viewing content created by media firms.
  • Mobile advertising is an even weaker business model. This recent eye-tracking study found that Facebook’s mobile ads were flopping with users. As I have said for years, mobile ads flop with all users, so Facebook’s failure to “win on mobile” is less about Facebook’s failure than about the concept, which is flawed.
  • Note, these are not Facebook problems, but Facebook management sounds disingenuous or inexperienced by betting on advertising and mobile.

Facebook Needs to Reinvent Itself—Or It Will Be Yahoo 2.0

CSRA is an enthusiastic user of Facebook, and I have seen its power and potential on engagements with many businesses. That said, Facebook lacks a value proposition that will enable it to “monetize” its unique popularity. This lack is significantly compounded by the fact that market expectations are wildly inflated. “Investors” seem to have overlooked the lack of a value proposition. By contrast, LinkedIn is on much more solid ground. No one at Facebook seems to understand. Danger signs:

  • Facebook’s membership in 14 of the 23 countries in which it has more than 50% market share is flat or falling; its global growth is driven by emerging markets. This would not be a huge problem if a stronger competitor were siphoning off members. But Facebook has no head-to-head competitor; I don’t think that anyone knows why users are leaving, but people with the most experience with Facebook have stopped increasing their use of/affiliation with Facebook.
  • As I said in “… Pureplays Will Fade,” Social” is too core to human interactivity to be valued by itself, but it can increase human productivity incredibly; it’s our OS, so we won’t pay for it by itself. We will pay to do things it can help us accomplish.
  • Facebook is very popular, but it’s like infrastructure, people are on it, but they aren’t doing things that they explicitly value, so they won’t pay for services. Advertising to them will not slake investors’ (inflated) expectations, which endangers Facebook the company.


  • I wrote that Zuckerberg’s understanding of user experience and control of the company might be the company’s greatest asset, but it increasingly looks like he’s in over his head. Worse, the ownership structure of the company doesn’t enable the board to retire him to an advisory figurehead title while bringing in a professional CEO. So the current (limited) management team will probably carry on too long.
  • Technology feature changes have always been fast and furious at Facebook, but the company will amp up features as it gets increasingly desperate to drive metrics and stock price. CFO David Ebersman: “At this early stage of our growth, investment is a top priority.”
  • The company will stop innovating. From a user perspective, it has stagnated the past year at least; the big “innovation” has been Timeline, which benefits users less than Facebook’s ability to advertise. Likewise, user-created ads has already flopped.
  • Users themselves often can’t explain why they are “on Facebook.” Humans do not understand the power of sociality explicitly, so they cannot value it explicitly. They can understand LinkedIn because it’s a tight labor market.
  • For the record, I think that Facebook could succeed wildly (see Wrapping Up) on its website and via mobile, but it would have to transform its relationship with users to open rich new sources of revenue. I don’t see that happening with the current management team.


  • Anticipate erratic technology changes. If your firm or brand has a significant Facebook presence, manage risk by assigning a member of your team to monitor top blogs that follow Facebook. Make contingency plans for your Facebook workflows to prepare for inconveniences.
  • Leverage your interaction strategy with stakeholders by opening up threads with them on other platforms. Your interaction strategy should be built on serving users in a unique way.
  • You can best mitigate your brand’s Facebook risk by deepening your relationships with your Fans/Likes. To do this, you must serve them consistently in a way that distinguishes you, increases their trust in you and proves your relevance to them.
  • Here are more detailed recommendations for managing platform risk.

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